Boston investors offer advice for Worcester

Sunday

May 5, 2013 at 8:00 AM

By Peter S. Cohan WALL & MAIN

The blossoms on the apple trees are opening up, and so is the sweet smell of entrepreneurship in Worcester. Thanks to the growth at Gateway Park, new jobs are coming to Worcester. But a big question remains: How can Worcester make itself compelling enough to keep the engineering and business minds that it trains to locate their businesses near their alma maters?

Gateway Park is growing so fast that there is not enough space for people to park. That's according to T&G columnist Aaron Nicodemus, who wrote, "The Gateway Park area is thriving. New businesses are moving in, a plan has been launched for a new hotel and Worcester Polytechnic Institute is opening a new research facility on Prescott Street and building a $38 million dormitory building."

This is promising news, because if Worcester wants the talent that it educates to stay in the area to create new companies and jobs, it must draw in a steady stream of investment. But that investment will only come to Worcester if one of the companies that's operating in Gateway Park grows so fast that it ultimately goes public or gets sold in a high-profile acquisition.

Such an exit would be highly profitable for the owners of the company. And it would get the attention of Boston-area venture capitalists who are on the prowl for ways that they can double or triple their money in three to five years. If a company in Worcester does that without venture help, it will surely create a stampede of outside investors to get their foot in the door in the next big thing that Worcester's talent can cook up.

To be sure, WPI produces talent that is highly admired by Boston-area venture capitalists. For example, in an interview on April 27 William Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship, told me that Greylock Venture Partners general partner, William Kaiser (who graduated from MIT and Harvard Business School), told Mr. Aulet, "I would rather staff my startups with WPI graduates than MIT ones."

Having attended MIT myself, I would guess that Mr. Kaiser has concluded that many MIT engineers are great visionaries and technically brilliant, but that WPI graduates more frequently combine the engineering and business skills needed to set goals and build the talented teams that can deliver products that customers will buy.

So what does Worcester need in order to keep WPI graduates there? The answer is that it has to become a place that young people are excited to live. Mr. Aulet summarized the difference between Boston/Cambridge and Worcester in a word, "culture." As Derek Schoettle, chief executive officer of Cloudant, a fast-growing provider of a service that helps companies store unstructured electronic data, explained in a May 2 interview, "Cloudant's engineering talent wants to work and live in Boston or Cambridge, instead of Worcester, because of their brand cache. They want to be able to brag to their friends about where they work and how cool it is."

One possibility is that Worcester could create a district with modern shops, restaurants, bars, movie theaters, health clubs, apartments and open-plan office space with high-speed Internet access all within a five- or 10-minute walk. Moreover, if the apartment and office rents were say 50 percent lower than comparable space in Boston and Cambridge (office space goes for at least $30 per square foot per month there), Worcester might become an attractive place for WPI graduates to locate startups. Worcester might benefit from asking students whether such a district would make Worcester a "cool" place to live and work.

But to attract venture capital, Worcester needs to overcome some very entrenched ideas. For example, investors in Boston and the Waltham area enjoyed huge investment gains by funding companies that made computer hardware and software for large organizations, so-called enterprise technology.

And as Spark General Partner Todd Dagres explained in an April 30 interview, "Enterprise companies tend to locate in Littleton and Westford because that is where the people they need want to work. Either the engineers and marketers they need live in or near those towns, or they come in from New Hampshire. And that's where the ecosystem is. Even though Worcester rents are more affordable, people are not willing to drive that far. We tend to go where entrepreneurs want to be."

Fast-growing companies like Cloudant — that grew from eight people in November 2012 to 60 in May 2013 — could be catalysts for drawing entrepreneurs to open up shop in Worcester.

As Mr. Schoettle explained, "We are growing so fast now that we need to think about whether we should continue to expand in our Boston office near South Station. If we hit 100 to 125 employees, we could decide to open up satellites in places like Portsmouth, N.H., or Worcester. If these cities offer tax breaks and incentives we could rent space with cloud services providers, like Rackspace, and house startups that develop applications for enterprise customers using our product."

Riding the hyper-growth of companies like Cloudant could help make Worcester a cool place for WPI-graduate-led startups. And the success of such startups could draw in venture capitalists and create a virtuous cycle that would spur more of Worcester's talent to start job-creating new ventures.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy at Babson College. His email address is peter@petercohan.com